Corpus Christi dodges Moody's rating downgrades

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Moody's Ratings on Wednesday confirmed Corpus Christi's bond ratings, ending a review it launched in April for possible downgrades as the Texas city faced a looming water supply crisis.

The A1 general obligation and combined utility revenue bond ratings were assigned a negative outlook, reflecting "challenging credit conditions over the outlook horizon as the city seeks to alleviate its water supply issues amid a tight implementation window," according to the Moody's rating report, which said the city has about $2.2 billion of outstanding debt.

"The city's inability to make material progress on its efforts to augment its long-term water supply would continue to weaken our longer-term view of the credit profile," it added.

The report acknowledged the postponement of a potential Level 1 emergency — indicating Corpus Christi's regional water system is 180 days from supply not meeting demand — to September 2027 from December. Recent rainfall led to the nine-month reprieve, announced June 23.

"While the improved supply outlook does not reduce the underlying urgency of the city's water challenges, it materially extends the implementation window for its supply diversification efforts and delays the immediate risk of curtailment and resultant economic disruption," Moody's said, warning that a lack of meaningful progress to augment long-term water supply could still lead to a rating downgrade. 

In a statement, City Manager Peter Zanoni said, "Moody's recognizes the aggressive, proactive steps our leadership team has taken to protect our fiscal standing and water security."

"The updated outlook from Moody's indicates the need for us to continue to execute our water supply projects," he added.

To stave off the crisis, Corpus Christi has underway $1 billion of groundwater, wastewater reuse and other projects aimed at producing 66 million gallons of water daily. Long-term projects being explored involve seawater desalination, although the future of an Inner Harbor desalination plant remains uncertain after the city council postponed until September consideration of an initial contract for the project.

The council on Tuesday rejected a move to apply for a U.S. Bureau of Reclamation grant for the project. 

In the wake of a previous review, Moody's downgraded Corpus Christi's GO rating to A1 from Aa2 and utility system rating to A1 from Aa3 in December.

S&P Global Ratings in May downgraded the city's utility system revenue debt rating two notches to A and placed it on CreditWatch, indicating the potential for another downgrade over the next six months.

Fitch Ratings dropped the system's AA-minus rating to A-minus with a negative outlook in June. Both rating agencies have negative outlooks on their AA ratings for the city's GO debt.

Corpus Christi Water, a city agency, is the primary water supplier for a seven-county region, which is experiencing stage three drought conditions that triggered water-use restrictions.